Impact of GST on E-commerce sector

Passage of the 122nd Constitutional Amendment Bill (CAB) by the Rajya Sabha is clearly a significant milestone achieved in the journey of GST in India. While passage of the CAB has brought in a lot of joy to the businesses as well as the policy makers, the e-commerce sector has reasons to shy away from the Model GST Law released in the public roman on 14th June 2016, as it stand today.

The provisions relating to tax collection at source has been introduced in the Model GST Law for all sale of goods done through e-commerce portals wherein the payment to the seller is made by the marketplace. In such cases, the market place would be required to deduct tax (likely to be 1%) at the time of making payment to the sellers. This would lead to issues such as a credit accumulation for retailers who operate on thin margins, cash flow issue, etc.

One of the biggest and serious concern arises on account of the registration provisions for retailers selling through e-commerce portal. The Model GST Law provides that the marketplace and the seller selling goods through e-commerce portal would be required to register under the GST law, irrespective of the threshold. Specifically, for the small & medium enterprises (SMEs) selling through e-commerce, it is a draconian provision and could actually lead to a complete wash out of the SMEs from selling through e-commerce portals.

The GST Law binds the e-commerce operators with some undue compliance burden such as registration, reporting and match reconciliation.

Additionally, the Operator may also be required to furnish information relating to supplies made through the Operator, stock of goods held in warehouses managed by such operators and declared as additional places of business upon issuance of a notice by the Authority as prescribed. Such information would have to be furnished within 5 working days of service of notice. Considering the volume / quantum of transactions undertaken through the Operator on a daily basis, 5 days may not be sufficient time to furnish such information, specifically where there is no scope for extension of such time limit.

Apart from the above, there are certain unaddressed issues in the Model GST Law.

In the case of sales returns, wherein the tax is already deposited based on credit to supplier or payment received, there are no provisions for either reversal or adjustment of the tax already paid. Specifically, the law should specify that supplies and returns within the same month should not be liable under this provision.

The GST Law also requires matching of the data filed by the Operator with the date filed by the seller. Further, in case of a mis-match, the liability has to be discharged by the seller. There is no provision provided for the e-commerce operator to correct the discrepancy, if any, in the statements filed by such e-commerce operator. This type of deemed supplies where the liability is being included in the hands of the sellers would cause grave hardship to the sellers, without giving them an opportunity to reconcile the difference. Sellers would be vary of transacting through ecommerce merely on account of any mismatch arising even out of an error occurring through the ecommerce operator as well.

Undoubtedly GST is the much awaited indirect tax reform in India, however, the Model GST law seems to suggest that this would bring in hectic times for the businesses, specially, the e-commerce sector.

DISCLAIMER: The views expressed are solely of the author and ETRetail.com does not necessarily subscribe to it. ETRetail.com shall not be responsible for any damage caused to any person/organisation directly or indirectly.

Kunal Wadhwa is a partner in the Indirect Tax practice in PwC India, specialising in IT and E-commerce sector. Prior to PwC, Kunal was Director Indirect Tax at BMR. Over the past 13 years, he has steered multiple challenging projects and advised clients on indirect tax related issues, including providing litigation support services, representation services and compliance services. Kunal is currently working with several Fortune 500 companies on their GST related matters.

Kunal Wadhwa is a partner in the Indirect Tax practice in PwC India, specialising in IT and E-commerce sector. Prior to PwC, Kunal was Director Indirect Tax at BMR. Over the past Show more.. 13 years, he has steered multiple challenging projects and advised clients on indirect tax related issues, including providing litigation support services, representation services and compliance services. Kunal is currently working with several Fortune 500 companies on their GST related matters.